Malaysia Solar Energy Profile

Malaysia has emerged as an international hub for the manufacture of solar photovoltaic (PV) cells, wafers and modules. The southeast Asian nation has been comparatively slow to take up solar energy at home, however.

U.S.-based market leaders First Solar and SunPower, along with South Korea-Germany’s Hanwha Q Cells manufacture the vast bulk of their solar PV cells and modules in Malaysia. Other market-leading manufacturers, including China’s JA Solar and Jinko Solar, have major manufacturing operations there, as well.

Malaysia, along with its ASEAN (Association of Southeast Asian Nations) has been slow to deploy solar and other renewable power generation capacity, however. Renewable energy accounts for just two percent (2%) of Malaysia’s total electricity generation capacity.

Looking ahead, prospects look brighter. Malaysia’s government has set a goal of renewables accounting for national power generation capacity by 2030. Large-scale solar energy auctions continue to be conducted, and just this past year, the government introduced a revised, 500-megawatt (MW) net energy metering (NEM) scheme aimed primarily at boosting solar and renewable power generation in the commercial and industrial (C&I) sector.

Large-scale solar tender Round 3 and a new national net metering scheme

In addition to the third round of its Large-Scale Solar (LSS-3) tenders and introduction of the revised NEM scheme, Malaysia recently reinforced its commitment to reduce greenhouse gas (GHG) emissions 45% by 2030, highlighted Chor Jack, a partner with the law firm of Christopher & Lee Ong (CLO), a member firm of Rajah & Tann Asia.

“We believe the Government is genuinely interested in achieving those goals,” Jack told Solar Magazine. “There is no doubt that conventional power has been the mainstay and contributes to most of the power demand. However, the government has in recent years emphasized on the need to expand the renewable energy mix.”

The government also announced it has begun drafting a Climate Change Act, a process that’s expected to take 24–30 months to fruition, and said it will establish a climate change center this year.

In addition, we understand that the Government intends to complete and announce a national climate change, adaptation and mitigation plan by the end of 2019.

Recent utility-scale solar project developments

A group led by a Singapore-based lender has revealed plans to finance a 30 MW solar project in northwestern Peninsular Malaysia. The companies did not disclose additional details about the financing package.

Singapore-based OCBC Bank and a consortium of unnamed lenders in late May said they would provide financing for the 30-MW PV project, which is being developed by KBJ Hecmy Sdn Bhd in Bukit Keteri in the Malaysian state of Perlis. The project award was made as a result of the LSS-2 solar energy tender.

KBJ Hecmy is a joint venture between Hanwha Energy Corporation of Singapore and Malaysia’s Konsortium Berseri Jaya. Having signed a 21-year power purchase agreement (PPA) with Tengasa Nasional Berhad (TNB), the solar power farm is to start feeding emissions-free energy on to TNB’s transmission-distribution grid by 2020’s second quarter.

Privatized in 2013, TNB remains the government’s sole, designated buyer and transmission-distribution provider of electricity generated by independent power producers (IPPs). It also owns and develops generation capacity, a potential conflict of interest prevalent across Southeast Asia and other parts of the world.

“OCBC Bank is committed to the development of renewable energy in Malaysia,” said Tan Ai Chin, managing director and senior banker for client coverage and head of investment banking at OCBC Bank. “Our two-pronged approach is to first cease financing coal-fired power plants and then replace them with greener alternatives.”

Earlier in May, Norway’s Scatec Solar and its Malaysian joint venture partner, a consortium led by ITRAMAS, grid-connected a 65-MW solar power plant in southwest Peninsular Malaysia. Completion of the Jasin solar power farm marked Scatec’s second successful, utility-scale solar power project development.

The Jasin Solar Power Plant in Malaysia. | Image: Scatec Solar

The new plant is expected to provide about 94 gigawatt-hours (GWh) of electricity per year, enough emissions-free energy to meet the needs of more than 31,000 Malaysian households, Scatec says. “We are pleased to have reached commercial operation for the Jasin solar plant, doubling our assets in operation to 130 MW in Malaysia,” said Scatec Solar CEO Raymond Carlsen.

Jasin is the second of three utility-scale solar power projects Scatec has been developing in Malaysia. All told, Scatec is investing some MYR1,235 million (USD293 million) to develop the three, which have a combined total capacity of 197 MW. As is the case with KBJ Hecmy’s 30-MW solar power project, TNB set out the terms and conditions under which Scatec’s solar power plants will sell and dispatch electricity on to the grid.

Scatec entered the Malaysian solar energy market in December 2016 by joining forces with a local ITRAMAS-led consortium. “Southeast Asia continues to be a key market for us, and we expect that the Government of Malaysia will maintain high ambitions for the deployment of renewable energy in the country,” Carlsen said.

Utility-scale solar in Malaysia

Jack and CLO partner Christopher Lee have been involved in Malaysia’s solar energy market and industry since the introduction of a feed-in-tariff (FiT) in 2011. Among others, they advised Scatec Solar ASA as co-sponsor and investor regarding the development of large-scale solar plants with a combined capacity of 150 MWac.

Utility-scale and mid-tier projects predominate in Malaysia’s solar power market, according to Jack. Following two previous iterations in 2016 and 2017, the government launched the third round of Malaysia’s LSS-3 auction in February and it’s still underway.

A prospective total of 500MWac of large-scale solar power capacity is up for bidding according to the LSS-3 request for proposals (RFP). Individual projects can range from 1 MW-100MWac, with bidding to close in August. Results are expected to be announced in late 2019 or early 2020, Jack explained.

The key factor to this is the cost of owning or buying solar panels and equipment and developing the project. Whilst the price of solar panels has significantly reduced over the years, other equipment required to operate a solar facility remains costly, e.g. inverters.

CLO advised on project development and finance of three, 30-MW solar power plants in Malaysia (1 plant of 4MWac and 3 plants of 30MWac each) which were tendered and awarded under the the first and second large-scale solar bidding rounds in 2016 and 2017) by Scatec Solar ASA and Hanwha Energy Corp. CLO also advised on a 50-MW solar power project on Sabah that makes use of PV modules manufactured and supplied by JA Solar and a 3-MW solar project for BayWa Renewable Energy. All went to successful financial closes, according to Jack.

Pursuant to the improved NEM scheme, solar technology is now being marketed more heavily to the commercial & industrial and residential market segments, though how popular it is received by those segments remains to be seen.

—Jack said in an interview.

NEM, which has only been available to TNB customers in Peninsular Malaysia, has been slow to catch on up until recently, Jack pointed out. Applications for just 4% of the 500-MW quota allocated for the 2016–2020 period had been received.

“This was due to the lower selling price of RM0.31/kWh compared to the tariffs charged by the utilities ranging from RM0.218/kWh to RM0.571/kWh,” according to Jack. “Beginning 1 January 2019, excess electricity will be exported back to the grid on a one-to-one basis, i.e. there will be no difference between the selling and buying price of the electricity. This is expected to stimulate solar energy growth particularly in the commercial & industrial sectors.”

Alternative forms of solar financing, such as solar PPAs and third-party solar leases, are now available in Malaysia as a result of the introduction of the new NEM scheme and the government’s intention of “democratizing the market,” Jack pointed out.

“These models allow third-party investors and asset owners to finance the development of the plant and continue owning the asset. In return, the consumer enters into a power purchase agreement or lease agreement with the investor or asset owner to purchase energy generated by the plant or utilize the plant to generate electricity at an agreed rate,” he said.

The government aims to spread participation in Malaysia’s solar energy market as widely as possible, Jack explained. “Hence, [it] has restricted the number of projects that may be bid for or owned by a single owner or person,” he said.

The government took the same approach when it introduced the solar FiT and it continues to apply it in its large-scale solar energy tenders, Jack noted. “[T]he number of projects that a person can bid for is limited. As such, there is currently no clear market leader in terms of solar energy generation,” he said.

Behind-the-meter solar energy incentives in Malaysia

In addition to PPAs and solar leases, the NEM scheme offers lower tariffs to those who install solar energy systems, as well as tax incentives and reduced electricity bills through the one-to-one offsets, where every 1 kilowatt-hour (kWh) of energy consumed from the grid is offset by a 1-kWh credit for the energy exported to the grid, Energy Minister Yeo explained.

The Malaysian Investment Development Authority is offering small- and medium-sized businesses (SMBs) a “green” investment tax allowance and income tax exemption for the purchase of solar PV systems.

Those interested in installing solar energy systems have responded positively to the new NEM scheme, according to Yeo. “As of May 2019, a total of 16.6 MW of NEM has been approved in the first four months of 2019, compared with the approved capacity of 18.24 MW in 2018,” she was quoted in a press release.

A tightly controlled national energy market

State utility TNB is a key player in the formulation of energy policy, as well as the deployment of solar and renewable energy capacity throughout Malaysia. TNB is the sole buyer of independently produced power generation, as well as being the national grid operator, in Peninsular Malaysia and Sabah via its Sabah Electricity Sdn. Bhd. subsidiary, Jack explained.

“Hence, [TNB] is expected to have a certain measure of influence on policy formulation and market growth. Though playing separate roles from the regulator—the Energy Commission of Malaysia—TNB is anticipated to have significant input and a significant say in any consultation that the authorities may conduct,” Jack said.

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Malaysia’s energy sector remains tightly controlled and is yet to be fully liberalized, constraining solar and renewable energy market and industry development and growth, Jack explained. Malaysia’s government has taken actions to liberalize the nation’s solar energy market and industry, but by and large the sector remains a very controlled one that’s dependent on government policy and programs to develop and grow, Jack said.

“Although it is anticipated that the majority of the renewable energy mix would be contributed by solar energy and the government having set an aggressive target of 20% of the country’s electricity to be generated from renewable sources by 2030, the scale of available solar energy programs, quotas or capacity have not been dramatically increased from what has previously been made available,” Jack highlighted.

Restrictions on foreign participation

More particularly, foreign participation remains restricted. “Foreigners are generally only allowed to own up to 49% of the controlling interest in project entities. This reduces attractiveness of the market to many international solar energy IPPs (independent power producers), which in turn reduces competition,” Jack said.

Limitations on foreign participation extend to engineering, procurement and construction, or EPC. “Under the LSS-3 RFP, the role of the EPC contractor and onshore EPC works are reserved for local contractors,” Jack pointed out.

PV modules assembly line using modern robots. | Image: JinkoSolar

“Industry participants are understandably concerned as there are not many EPC contractors that specialize in large-scale solar project development or have experience in building large-scale solar power plants. Even then, those EPC contractors may not have the financial heft to take on the bigger-sized projects. The protectionist stance also slows the transfer of best-in-class practices and technology that may be imparted by international EPC contractors,” Jack said.

Reticence on the part of local banks and financial institutions to finance solar energy projects constrains market and industry growth and development, as well, Jack continued. “Local financial institutions still take quite a conservative view of solar energy projects and bank financing is not as readily available and not quite as attractive especially for small to mid-sized solar power plants,” he said.

“Having said that, the larger-sized projects (50MWac and above) should have no issue raising project bonds (particularly Islamic sukuk bonds) as ‘green’ sukuk continues to be in very high demand,” Jack added.

An overall improvement in Malaysia’s solar energy market

Malaysia’s solar FiT was intended to promote generation while the NEM scheme is intended to promote consumption, Jack pointed out. Generally speaking, “there is improvement in terms of promoting usage of green energy and less reliability on conventional sources of electricity. However, it may not be so from the perspective of increasing the national pool of green energy as under the NEM scheme, green energy would only be injected into the grid if there is any excess from a facility, which may not necessarily be high in volume,” he said.

All things considered, “replacement of the solar FiT with the NEM scheme and the LSS bidding rounds, in particular, is seen as a positive. Not only has it driven tariffs down and increased competitiveness in the market, it has also added quite a bit of growth to the industry. Feed-in tariff projects are generally quite small in nature and each plant rarely exceeded 1MW in capacity,” Jack explained.

The usage of battery-based energy storage is not common and in fact almost not used at all. “There has so far been not much encouragement by the Government for such technology to be adopted, though there appears to be a change in mindset, albeit slowly,” according to Jack.

Jack points out that battery-based energy storage is included in the LSS3 RFP. “However, do note that usage is only for the purpose of providing energy for on-site consumption and/or for stabilizing the energy production of the plant and reducing the effect of intermittency of solar output,” he pointed out.

CLO continues to be actively involved in Malaysia’s solar energy market. At present, it’s advising parties interested in participating in the third round of the government’s LSS, which was announced in February this year, as well as those considering getting involved in the NEM scheme, according to Jack.

Malaysia solar energy policy: A seven out of 10

Asked to rate the government’s performance regarding solar policy, Jack said: “All things considered, we’d rate it a 7 out of 10. The government has introduced programs to spur the development of the industry and those programs have seen keen interest, particularly the large-scale solar bidding rounds. However, the industry is still quite protectionist in nature, and there remain some hurdles which, if removed, could further spur the growth of the industry and assist solar energy to achieve grid parity.”

Looking forward over the next few years, Jack said several large-scale solar power farms awarded under the LSS-2 and LSS-3 auction programs will come online. An increase in mid-tier and residential solar power capacity is anticipated as a result of the revised NEM scheme, as well, he concluded. comment

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